Section 2(85)- Small Company as per Companies Act 2013

Small companies are basically the small start ups with the limited amount of the investment by the promoter. Concept of small companies helps one to focus with its core activities rather than indulging in the expenses and time for conducting more than two Board meeting in a year, which might not be actual requirement of the company.

Section 2(85) of the companies act 2013 give detailed definition of the small company.

Company can claim to be small company as per Act on fulfilling the following provisions:

1) Company should be Private Limited

2) Paid Up capital should not be more than Rs. 50 Lakh

3) Turnovers should not exceed more than Rs. 2 cr

*All above condition needs to be compiled with.*

Following companies cannot claim for the small companies benefit even if the above mentioned provision are complied with:

4) Holding or subsidiary company

5) Section 8 companies

6) special act which governs any company or corporate bodies.

In the initial stage of implementation of the concept of small companies, either of the provision (2) or (3) were required to be complied with which made it very easy for the private entrepreneurs to claim for small companies.

Later, in February 2015, MCA published a clarification in the Gazette amending the definition making it all the provision between clause 1 to 3 mentioned above.

Why private entrepreneurs really want to claim for the ‘small companies’ title? What are the benefits they can claim thru the same?

*Benefits:

a) Annual returns to be signed either by Director or by CS. Not by both of them

b) Only two Board Meeting need to be call and conduct in a Year, one meeting in one Half year, gap between both the meeting should not be less than 90 days.

c) Cash Flow statement need not to be prepared

d) Auditor is not liable for retired by rotation.

*How and when companies are treated as small companies?*

Status of the company will remain small company based on the Annual returns filed by the company. It is clear indicating that company will be treated as “Small Company” only if the provision of the Act is complied with an annual basis and not only for the first time.